Questions for: John Annaloro, CEO, Northwest Credit Union Association

After 15 years at the helm, John Annaloro is stepping down as head of the Northwest Credit Union Association, which has nearly 200 credit union members in Oregon and Washington. Annaloro will officially hand over the reins to Troy Stang, the NWCUA’s current president, at the organization’s annual convention Oct. 4. Annaloro is credited for leading the passage of the Credit Union Membership Act of 1998, which significantly opened credit union membership eligibility to consumers, paving the way for nearly 93 million Americans to join a credit union. Annaloro talks about his tenure, including his efforts to expand credit union membership and current efforts to make it easier for credit unions to extend more business loans.

Talk about your ongoing efforts to allow credit unions to lend more to small business members: It’s a national piece of legislation. It is moving through the Congress. Bank lending peaked in 2008. Business owners are looking for a place to replace their source of credit that they need to stay in business, for growth, for payroll for inventory. Sixty percent of the institutions in Washington are credit unions. That’s the natural place to go.

The stiffest wind is moving anything through congress at this point in time. It’s an election year. The partisan politics are difficult. The completive issues are not so bad. We have a lot of justification on our side. There’s a logical case for doing this if you look at the increase in the amount of business lending credit unions do. Increasing it from 12.5 percent of assets to 27.5 percent of assets, it sounds like a lot. But when you realize we are only talking about 6 percent of the entire banking industry, of the 14,000 combined credit unions and banks, the assets are so small. We are only talking about a 14 percent increase in the 6 percent that we represent of all the assets in the financial system.

Mathematically it is insignificant. It makes a big deal to the business owners in Washington to have more sources of credit. More competition is good and to be able to shop for a line of credit or business loan is advantageous for any business owner.

How have credit unions done in keeping up with technology? There are a lot of changes and a lot more to come, especially in the payment system, replication of the credit card system into other devices, and other ways to engage in electronic commerce and transfer of funds between individuals. Credit unions are doing well. There are 91 providers of core data processing systems in the credit union space. There are a lot of options to choose from and a lot of the providers also work with community banks. It’s hard to imagine a young person having a financial institution relationship without a mobile app. It’s an issue for all financial institutions, because in the minds of certain consumers you are nothing more than an app on the phone. Keeping pace with that is important.

Why was it necessary to merge the Washington and Oregon organizations into one group? There is a lot of consolidation in the financial services sector in general. It’s probably the most rapidly consolidating segment of American business today. Both banks and credit unions are decreasing in numbers because there are big needs for efficiencies. Larger institutions can diversify risk against a larger pool of consumers. The cost of compliance is very, very high, with the number of regulatory bodies that patrol and govern the operations. We see a declining number of institutions.

A trade group is based on institutional membership. Oregon and Washington have very similar social and geopolitical demographics. It made a lot of sense. It had been talked about for 30 years and we just got it done in 2010.

Why are you leaving your position now? I’m 65. It’s a good time. The dynamics are changing in the industry. The last 15 years we have been involved in a market share war with the banks. It’s a classic battle between nonprofit and for-profit providers. It happened in the utility industry, it happens in hospitals. Sometimes it’s easier to try to set back your competitor with regulator banana peels and statutory changes than it is to change your prices. I was the one who had to lead a government affairs agenda. But things have changed. The financial services industry is changing and it will over the next decade because of the financial crisis. Consumer demand for more consumer-focused financial services will stay in play for a while as there is a general mistrust of the financial system following the crisis. It’s time to focus on that.

“Nonprofits compete unfairly because THEY are not taxed as banks.” How do you respond when you hear that? The second part of their sentence is, credit unions ought to convert to banks. But the first part of my sentence would be: If we have such an advantage, they can convert to a credit union charter. And they don’t. They don’t because officers and directors of banks can take a personal equity interest or a stockholder interest and line their own pockets at the expense of consumers. They have shareholders that want them to be in business to maximize their profits, not necessarily to take care of consumers. So the stockholders won’t let them convert to a credit union. We are the only segment of the financial sector that has to operate on a nonprofit basis.

You sound pretty feisty still. Are you sure you don’t want to stay a little longer? (Laughs) It’s so nice to represent an industry that’s clean and green and has been doing the right thing. The worse recessionary crisis in our lifetime caused by the banking sector, and to be the antithesis of the problem-causing institutions has been a distinguishing duty station for me.